WEEKLY FAYRE – Monday, 23rd March 2020

March 23, 2020

"A thing of beauty is a joy for ever:
Its lovliness increases; it will never
Pass into nothingness; but still will keep
A bower quiet for us, and a sleep
Full of sweet dreams, and health, and quiet breathing.
Therefore, on every morrow, are we wreathing
A flowery band to bind us to the earth,
Spite of despondence, of the inhuman dearth
Of noble natures, of the gloomy days,
Of all the unhealthy and o'er-darkn'd ways
Made for our searching: yes, in spite of all,
Some shape of beauty moves away the pall
From our dark spirits. Such the sun, the moon,
Trees old and young, sprouting a shady boon
For simple sheep; and such are daffodils
With the green world they live in; and clear rills
That for themselves a cooling covert make
'Gainst the hot season; the mid-forest brake,
Rich with a sprinkling of fair musk-rose blooms:
And such too is the grandeur of the dooms
We have imagined for the mighty dead;
An endless fountain of immortal drink,
Pouring unto us from the heaven's brink"

John Keats – poet – 1795-1821

 

Here I am in ‘self-quarantine’ holed up in my flat with so much time to ruminate on what I have experienced in my life, which has been fabulous, with few blemishes to ponder over. My generation has surely had the best of it. There have been no world wars. In the free world, we have seen their respective economies dramatically expand. I have been in gainful employment most of my life. The contribution of the NHS has been profound. The quality of education has been superb. I have nothing to complain about. However, I have huge regrets about our children, who have one hell of an economic and social mess to clean up.

I am somewhat amazed that when this coronavirus was flagged up in China at the end of last November in Wuhan, that global warning sirens were not blasted from every roof top. However I suspect China withheld the truth about the damaging extent of the virus for some time Maybe the WHO did make ‘a song and dance’, but if so, I never heard them and nor did rather more influential people than me pay any heed. Perhaps the devastation from this pandemic on a global basis was inevitable. However, I cannot help feeling that the world should have been far better prepared than it was, despite having no vaccine. Surely civilised society should have acknowledged thateating bat soup and civet pie is not an acceptable diet?

As for financial markets, many of us must have been asleep on the job or we were not primed as to the dangers of this epidemic. For global stock markets refusing to acknowledge that this virus would temporarily devastate global growth until 12th February 2020, is breath-taking in its incredulity. 

 

INDEX

31/12/19

20/3/20

% loss

FTSE 100

7604

5190

-31.7%

XETRA-DAX

12385

8928

-27.9%

CAC40

6041

4048

-32.9%

DJIA

28868

19173

-33.6%

S&P 500

3257

2304

-29.3%

NASDAQ

9092

6879

-24.3%

Shanghai

3085

2745

-11.02%

Nikkei225

23204

16552

-28.7%

Hang Seng

28543

22805

-20.1%

 

INDEX

16th March 2020

20th March 2020

% loss

FTSE 100

5366

5190

-3.27%

DAX

8728

8928

+2.29%

CAC40

3886

4048

+4.17%

DJIA

20917

19173

-8.33%

S&P 500

2508

2304

-8.13%

NASDAQ

7392

6879

-6.94%

SHANGHAI

2897

2745

-4.90%

HANG SENG

23317

22805

-2.20%

NIKKEI 225

18183

16552

-8.97%

The demolition job effected on global equity markets the week before last could only be described as apocalyptic. This past week the losses in the US have continued to be very severe, as they have been in Tokyo, tapered in China, HK and the US, though marginally positive in Germany and France. The most interesting aspect about last week’s trading has been the gargantuan level of volatility. Investors and analysts have either dealt in expectation of official help or dismissive of its quality. Programme trades and algorithms have played the matinee idol role. It is still impossible to value companies, when no one knows when this coronavirus will finally abate or provide some respite. We know for sure that the World will now be in recession for maybe the next six months; that is not rocket science; it is straight-forward common sense. Therefore, it may be folly to think that the ‘selling’ has finished. Companies are really beginning to suffer with the likes of M&S, Intercontinental Hotels and Travis Perkins announcing on Friday that dividends would either be cut or postponed. Look at the way oil companies have been savaged since the start of the year. BP and Royal Dutch Shell have halved in value and many will think that neither will be able to sustain their dividends. On Friday, US markets left for the ‘Hamptons’ less than impressed with the US Government with investors venting their spleens, taking the DJIA 900 points lower. It is hard to imagine a positive response today without fiscal intervention. Congress so far has failed to agree a $2 trillion bail-out package with the Democrats insisting that it currently favours business rather than the individual.

What has been dispiriting is the fact there appears to have been very little in the way of global coordination over financial and fiscal assistance for those who have seen their respective economies fall off a cliff. The outlook for joined-up thinking and strategy looks better than a week ago. President Trump response to the threat of this epidemic has lacked focus. We finally saw some action from Messrs Mnuchin and Powell to the tune of $750 billion for the FED to buy in commercial paper and municipal bonds and perhaps another $1 trillion in two $500 billion tranches to help alleviate the pain being felt as the dole queue threatens to hit the overdrive button. President Macron was first out of the blocks with a €330 BN package to bolster France’s flagging economy. I am still reeling how chilled out the ECB’s Mme Lagarde was in bringing her rescue package to the EU’S party. Maybe I am being unfair, but the ECB’s contribution to Italy’s and Spain’s plight in recent weeks has been tepid at best.

The ECB’S perceived lack of urgency is mind-blowing. Why? It seems rather obvious to me that this drama/crisis that is unfolding may well be worse that WW1, WW2 and the financial crisis all rolled in to one.

Finally, the crisis in the UK saw Chancellor Sunak having to regroup very quickly after his official Budget on 11th March, which proved to be wholly inadequate to bolster the UK economy, which was about to fall perpendicularly off a cliff, if immediate remedial action was not implemented to stave off massive unemployment and the closure of businesses. Many suspect that an increase in unemployment cannot be avoided. So, Chancellor Sunak introduced an unprecedented package of £330 billion, most of it in the form of friendly cheap loans to ailing SMES and larger companies. Having reassessed the situation, it quickly became obvious that inadequate help was being offered to those people who need to pay their rent and keep themselves in food.

The Government, Treasury and Bank of England then worked tirelessly in conjunction with the TUC and CBI to come up with a package to provide 80% of salaries up to £2.500 a month for the time being, together with increased benefits on Universal Credit for those self-employed. This may, again, not be enough, as there are 5 million in this category. The Government refused to be drawn on the cost, but the overall package will surely run into hundreds of billions. These are unprecedented times and therefore it required the fiscal rule book to be tossed out of the window with unprecedented measures. Tax and business rates moratoriums have also been introduced as further measures of help. However, I fear more needs to be done to help the self-employed. Rishi Sunak and his Treasury team have really stepped up to meet the needs of this crisis. All have shown great leadership and imagination. The greatest challenge this government will have in the next month will be to get these benefits and cash to those who qualify quickly before some companies and many self-employed go broke. That will be no mean feat. HMRC will have its work cut out.

There is little doubt that GDP may well fall globally by as much as 4% this year. Therefore, it is imperative that infrastructure and help is in place to respond to the recovery. Airlines, retail, apart from supermarkets and food and the entertainment sectors are in a dire state and may require help directly and indirectly in due course. Last week, Ocado posted a 10.3% increase in sales in the last trading period and NEXT posted a selection of sales forecasts for the future, up to a loss of £1 billion in revenue in the next year – excellent housekeeping by Lord Wolfson.

Andrew Bailey has replaced Mark Carney as Governor of the Bank of England and the transition has been seamless. We have had two cuts in rates. I think they have been no more than symbolic, as the foreign exchange market was close to becoming disorderly as the Pound fell from $1.19 to $1.14 in a heartbeat in response to markets concerning themselves over the Debt office’s ability to raise sufficient long term debt against the Chancellor’s proposals to provide help with too much commercial and personal debt. It did not take long for Governor Bailey to get his message across a la Bruce Forsyth – “I’m in Charge!” – and so he appears to be. The Bank of England has cancelled stress tests for the time being. Praise should be ladled on Mark Carney and Andrew Bailey for previously having made draconian provisions to enable banks to stand up to this sort of crisis. Many thought the capital requirements imposed then were too tough – how wrong they appear to have been.

What has been really heartening in recent days has been the collaboration between the major international drug companies – Roche, Sanofi-Aventis, Johnson & Johnson, Novartis, Pfizer, Eli Lily and presumably GSK and Astra Zeneca to find a vaccine PDQ or medicine that can confirm that people have had the virus or to keep it under control. Also, back here in Old Blighty the response from Rolls Royce, JCB, Meggitt, FI no less and others to help make the increasing demand for respirators is so welcome and very encouraging.

It really is all hands to the ‘pump’ and everyone has to make their contribution to help kick this debilitating disease into the long grass! It seems unlikely that any major UK company will report any results in the next two weeks on a recommendation of the FCA with a view to keeping markets orderly and to prevent confusion. There are no plans to shut markets in the foreseeable future!

Economic data posted this week – Monday – EU Consumer Confidence, Tuesday – UK, EU, US Manufacturing Services, Wednesday – UK Inflation, UK Distributive Trade Survey, Germany’s Ifo, US Durable Goods, Thursday – UK MPC Meeting, US GDP Final, Friday – UK Sovereign Debt Rating, US Personal Consumption, Personal Income and Spending

SOURCES – BBC, CNBC, Reuters, Daily Mail, FT, The Times, Sunday Times, Telegraph Group